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The Cloud: Software as a service (SaaS)

There are several different layers to the cloud, and to understand “The cloud” we need to examine the different types of cloud offerings provided by vendors.

The following diagram will be the basis for our discussion, although we won’t tackle it in order.

Instead, we’ll start our discussion with SaaS, because historically that’s where I started with “The Cloud”, so I’m completely biased to thinking that SaaS makes a good starting point.

SaaS: Software as a Service

Around 2003-2004 I started hearing about SalesForce.com. They were offering a different type of service than I had heard about before. During the .COM boom of the late 90’s and very early 2000s what I heard about most was how brick-and-mortar companies were doomed, and online stores were the future because they didn’t have to pay for retail space or keep very much inventory. I knew the guys behind Cars.com and a couple other start-ups, none of which exist any more.

[pullquote align=”right”]They sold software, but they sold it like the electricity service or water service to your house. You paid a monthly fee, and everything kept working.[/pullquote]Yes SalesForce.com was making waves. They were selling Customer Relationship Management (CRM) software that you could only buy as an ongoing subscription. You couldn’t just purchase their software on CD or DVD, or download it and install it on your servers. They took care of all of that. They took care of buying the servers, building the expensive data centres with redundant air conditioners and diesel power-supply backups. They hid all of the infrastructure problems like patching and upgrading operating systems, maintaining the database, and backing everything up off site. All you had to do was provide your company credit card and you had a rock-solid enterprise ready Customer Relationship Management tool that was accessible anywhere you were.

And they called this approach “Software as a Service” or SaaS. Unlike Pets.com of the late 90’s which tried to sell you pet supplies over the internet sight unseen, SalesForce.com sold a virtual good: a reliable and highly customizable CRM system that could immediately help you track your customers and sell more stuff for your own business. They sold software, but they sold it like the electricity service, water service, or internet service to your house. You paid a monthly fee, and everything kept working. Stop paying, and the company shuts off the electricity, water, internet, or CRM. Software sold as a service over the internet.

For me that was the first “Cloud” based service I’d heard about. But it wouldn’t take long to hear of others.

Now there are lots of SaaS offerings. For example, Google Docs and Office 365, both of which let you edit your documents and spreadsheets “in the cloud”. Rather than buy Microsoft Office DVDs, attempt to install them, type in your big-long security key, etc. you just pay a monthly fee and you can use office productivity tools in the Cloud. For a business the savings are even greater – no license tracking, remote installation, support, etc.

Another benefit of SaaS is that your documents are stored on Microsoft’s servers, and are therefore accessible from anywhere on the internet. Additionally, Microsoft automatically saves revisions of your documents, make backups, etc, so a bad floppy disk will never again corrupt your undergrad thesis. If they provide an update, everybody with an active subscription gets it right away – no updating hassles.

The SaaS approach to software can also be beneficial for small businesses. You can rent the software only when you need it, and it’s not a huge up-front cost. Most small businesses have cash-flow problems, so a small monthly fee is much more affordable than a large one-time license fee for boxed software – especially if the software won’t be used regularly.

Downsides

Of course, there are several downsides.

It’s 1am – do you know where your data is?

The first is that you no longer control your own documents. All of your data is in the cloud. For example, your documents are on Microsoft’s Office 365 servers. Stop paying the month service fee, and you don’t have access to your own documents anymore.

If you’re a competitor – say Amazon – you probably don’t want to store your company’s top-secret pricing spreadsheets in the Google or the Microsoft Office 365 cloud. Similarly, if you’re WikiLeaks and your access is suddenly shut off for political reasons then you’ve just lost access to all of your documents (and given them directly to the government).

It also becomes potentially much easier for a hacker to get access to your documents. Your data is now in the cloud and accessible anywhere. So a hacker no longer has to breach your company’s firewall security perimeter; he just needs to get your password – say through a phishing e-mail. If you’re like most people and you use the same e-mail for Office 365 as for your bowling league website – which just got hacked – you could be in trouble. (For this reason you should be using two-factor authentication, which is offered by more and more SaaS providers.)

(We’ll talk about some other more advanced ways of securing your data in the cloud a later dedicated security-in-the-cloud blog post.)

So Software as a Service/SaaS is convenient, but it comes at a cost.

Software as a Service ONLY

Of course, for the service provider the benefit of this approach is nice and predictable revenue. They know that most of their subscribers will continue being subscribers, and they know how regularly you use their software, so they can reliably predict their sales numbers for the next several quarters.

Compare this to the traditional model of trying to sell upgrades every few years. Most customers don’t buy every upgrade – instead they skip versions. I know lots of people and businesses still running Office XP from the early 2000s that didn’t give Microsoft any money for Office 2007, 2010 or 2012. They own a legitimate copy of Office XP and it still meets their needs, so why upgrade? Meanwhile, Microsoft has to invest millions in updating their software and then trying to convince businesses to upgrade.

This is a huge problem for software vendors, and the solution seems to be Software as a Service and monthly subscriptions. The SaaS model provides the software vendor with a wonderfully predictable monthly revenue stream.

Adobe

As a major example, in May 2013 Adobe announced that it would no longer sell “boxed” (or “one-and-done”) copies of its Creative Suite software (Photoshop, Illustrator, InDesign, etc.). So now the only way to get the latest version of Photoshop is through their SaaS Cloud offering – paying a subscription fee every month if you want to keep using the software. This is great for Adobe’s revenue stream, and fantastic if you’re a creative professional using Adobe on a regular basis because you’re paying a low monthly fee and automatically getting the latest bug fixes and improvements each month.

So like most things Software as a Service/SaaS provides some benefits, and some potential drawbacks.

Conclusion

So Software As a Service (SaaS) is one way of using the cloud. It’s the way most end-users see the Cloud, and it can certainly be beneficial for both small businesses and big enterprises. Paying for internet based software on a monthly basis is changing the software industry. Adobe no longer sells boxed versions of its software, and I wouldn’t be too surprised if Microsoft is heading that way too in the long-term.

But SaaS is certainly not the only way to use the cloud. As the diagram at the top of the article reveals there are many other ways to the cloud. In the next article we’re going to talk about Platform as a Service, which changes application development for small and big businesses.

Robert

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I’m very interested in your feedback and questions. Any comments or questions on SaaS?